Indonesia is Southeast Asia’s largest economy and most populous nation, contributing to around 40% of the regions GDP and 1/3rd of its population. Because of this, investment in ASEAN (The Association of Southeast Asian Nations) from Indonesia will ultimately decide the fate of the ASEAN Economic Community (AEC).

The AEC aims to transform the ten member states of ASEAN into a single economic union by 2015. In some ways similar to the EU, but without deeper ties such as a single currency. the AEC will promote a free flow of labor, investment, and trade while turning the region into a global powerhouse.

But the preparedness of some countries, Indonesia included, is being questioned. Some experts say it is unlikely the correct laws and regulations will be in place by the time of the AEC’s planned implementation in December of 2015.

“The world acknowledges the importance of Indonesia by its inclusion in G20. Every ASEAN initiative must include Indonesia, or at least have a timeline for Indonesia’s inclusion. And therein lies one of my major concerns for AEC.” Said Datuk Seri Nazir Razak, chairman of CIMB group.

 

Indonesia isn’t Investing in ASEAN Now, Will They Later?

Nazir believes that the Indonesia’s lack of participation in the ASEAN Trading Link is a sign of the country’s hesitation to take part in a broader regional community. The link’s purpose is to promote investment in ASEAN by integrating the stock exchanges of all countries in Southeast Asia, but only Singapore, Thailand and Malaysia have officially joined so far.

“There is a need to understand Indonesia’s reluctance, what it means on the broader level in terms of its real commitment to AEC and what can be done about it,” he said.

In addition, several laws must be changed in order to comply with the AEC’s standards, especially with regards to investment. Right now, foreign companies cannot list on the Indonesian Stock Exchange. Regulations also limit the percentage that businesses in some industries can be foreign owned. These are exactly the types of protectionist policies the AEC is trying to eliminate.

Indonesia’s president will have a large impact on the future of the AEC, according to Nazir. “Economic nationalism in Indonesia is on the rise, partly because of fears about AEC, and if the new Joko Widodo administration chooses to pander to this sentiment, then I would turn bearish about AEC’s prospects.”

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